Robert Samuelson and the Affordable Care Act: Almost Half Right

Monday, 22 October 2012 04:42

Robert Samuelson goes after the Affordable Care Act (ACA) in his column today. Remarkably, he is almost half right. His target is the provision that larger employers must provide insurance for full-time employees, which he says could amount to $5,000 a year. He tells readers that this provision will both lead to less hiring and also encourage employers to keep workers' hours below the 30 hour cutoff, both of which would be undesirable outcomes.

This is partly right, but only partly. The ACA does not actually require larger employers to buy insurance policies for their workers. It gives them the option of paying a penalty of $2000 per worker, with the first 30 workers being exempt. This means that an employer of 60 workers who did not want to offer insurance would face a penalty of $60,000 or $1,000 per worker. (One thousand dollars is only one-fifth of Samuelson's $5,000 number, but if we give him the marginal cost of hiring another worker we get to 40 percent, which is almost half.)

For a full-time worker this $1,000 penalty would come to 50 cents an hour. That is much smaller than recent increases in the minimum wage which have not been associated with any job loss according to a number of academic studies. Therefore, we might conclude that Samuelson's concerns about the ACA causing job loss have little foundation outside of Washington Postland.

However there is still the issue of gaming the system. Some employers will undoubtedly be happy to save themselves $2,000 by reducing their workers' hours from just over 30 per week to just under 30 per week. This would be bad news for workers at low-paying jobs who likely need these hours.

While Samuelson wants to throw up his hands and say we therefore should get rid of Obamacare, more serious people would say that we could look to amend the bill to have the penalties based on hours worked rather than the number of full-time workers. This provision on full-time workers was put in place by an amendment to the Senate bill. The original House bill had a more reasonable provision and it would not be difficult to design an amendment that did not base penalties on the number of full-time workers, but rather total hours worked. For those familiar with arithmetic, such calculations are not difficult.

There is another important point on this topic that Samuelson apparently missed. Historically insurance was provided as a per worker benefit, making it a fixed overhead cost. (It is increasingly common for employers to pro-rate its payment for insurance based on hours worked, but this practice is still the exception.) This meant that employers would rather have workers put in longer workweeks, possibly even paying an overtime premium, rather than hiring additional workers and paying for health insurance.

This is a major distortion of the labor market from the current system. It is undoubtedly one reason that full-time workers in the United States put in 20 percent more hours a year on average than do workers in western Europe. The notion that we somehow have a perfect labor market now, into which the ACA will introduce distortions, is absurd on its face.